Zomato-Paytm Deal: What Investors Need to Know
Dive into the details of the Zomato-Paytm deal as Paytm sells its entertainment ticketing business to Zomato for Rs 2,048 crore. Understand the implications for both companies and their investors.
Shares of One 97 Communications, the parent company of Paytm, surged nearly 5.5%, reaching Rs 604.70 on the National Stock Exchange (NSE), following the announcement of its entertainment ticketing business sale to Zomato for Rs 2,048 crore. This move aligns with Paytm's sharpened focus on its core competencies in payments and financial services. The divested business, which includes ticketing for movies, sports, and live events, has allowed Paytm to concentrate more intensely on expanding its services in insurance, equity broking, and wealth distribution.
A Closer Look At The Zomato-Paytm Deal
The transaction is structured as a cash-free, debt-free deal valued at Rs 2,048 crore. It entails the transfer of Paytm's entertainment ticketing business to its subsidiaries, Orbgen Technologies Pvt Ltd (OTPL) and Wasteland Entertainment Pvt Ltd (WEPL), which will then be sold to Zomato. Zomato plans to integrate these services into a newly envisioned app called 'District', expanding its offerings beyond food delivery.
Launch of New App 'District' by Zomato
Zomato's strategic move includes the launch of 'District', a new application designed to be a one-stop destination for entertainment needs such as movie and event ticketing. This initiative not only broadens Zomato's market reach but also enhances its service portfolio, potentially changing the game in the entertainment ticketing sector.
Impact on Business and Financials
The deal is expected to significantly benefit both companies. For Paytm, it results in a streamlined focus and potentially improves financial health by strengthening its balance sheet with cash proceeds. Zomato, on the other hand, anticipates a substantial boost in revenue, continuing its growth trajectory similar to the benefits seen from its previous acquisition of Blinkit.
For FY24, Paytm’s ticketing segment accounted for a Gross Merchandise Value (GMV) of Rs 2,000 crore, generating revenue of Rs 297 crore and an Adjusted EBITDA of Rs 29 crore. Under the terms of the current deal, the valuation of this business could potentially leap by 10-12 times based solely on its GMV. Although a jump in valuation of 10-12 times in two years might seem ambitious, it's not unprecedented for Zomato, which saw the value of Blinkit increase to 20 times its purchase price in 2022.
Market and Financial Analysts Weigh In
Several brokerages have expressed positive outlooks on the deal:
- Jefferies raised its target for Zomato to Rs 335, citing compelling valuation and potential high return ratios, similar to its food delivery business.
- Nomura maintains a 'Buy' rating with a target of Rs 280, emphasizing the strategic fit of the acquisition in focusing on high-growth areas.
- Bernstein recommends an 'Outperform' with a target of Rs 275, noting that the acquisition expands Zomato's Total Addressable Market (TAM) into the event ticketing business.
Conclusion: A Win-Win for Zomato and Paytm
This strategic acquisition by Zomato from Paytm not only enhances Zomato's service offerings but also strengthens Paytm's focus on its core financial services. It represents a pivotal shift in the digital commerce landscape, promising new growth avenues for both companies and setting a precedent for future tech alliances.
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